Opening a preschool or daycare center is a serious undertaking because its core objective is to provide a safe place for the kids. After completing the required paperwork for licenses and government approvals, you should prepare a budget for the first year. A budget is a projection of the monthly revenues and expenditures for the opening, but also for at least the upcoming year. A budget will help you map out the cash flows for the year and plan for cash shortfalls.
Set up your budget. Use a software spreadsheet to help with your calculations and reduce the chances for errors. Set aside columns for the cost and revenue item descriptions, budget estimates, actual results and variance, which is the difference between the budgeted and actual amounts. In addition to the cost and revenue items, set aside rows for subtotals and totals.
List your initial setup costs, such as office, kids' and safety equipment. In addition, set aside some funds for upfront or first month's payments for rent, insurance, licenses, cable and Internet connections and other items. You will need basic cooking facilities, including kitchen equipment and renovation costs. Office equipment includes computers, fax machines, copiers and telephones. Safety equipment includes fire extinguishers, smoke detectors and safety enclosures. Kids' equipment include various toys and play equipment, potty facilities and sleeping materials. These setup costs are for the preschool opening, which means you could prepare a separate budget for them or clearly identify them as one-time costs.
Forecast monthly operating costs for supplies, maintenance and utilities. Supplies include paper, pens and other basic office products, as well as toys, games, toiletries and other miscellaneous supplies for the kids. Utilities include telephone, Internet connection, water, heat and electricity. Maintenance includes building inspection and repairs, cleaning services, yard maintenance and snowplowing. You will also need to budget for online, radio and newspaper ads, as well as open houses to advertise your facilities to parents of infants and preschool toddlers.
Estimate staff costs, which are usually the majority of the costs for day care centers. Check with your state's family and children's services department on the required staff-to-child ratios. The ratios are lower for infants than for toddlers and kindergarten-age children. For example, if your starting enrollment consists of six toddlers less than 3 years old, you should budget for yourself and at least one full-time assistant. Add staff on a part-time and full-time basis as your center grows.
Estimate the monthly revenues, which are the average fees per kid multiplied by the number of kids. Use conservative estimates because it is easier to manage a cash surplus than a deficit. Remember that your operating costs are going to vary according to the number of kids in your center.
Calculate the projected monthly net cash flow, which is equal to the revenues minus the operating and staff costs. The initial costs will skew the first month's cash flow. You should have sufficient working capital for the setup costs and the operating costs for the first one to two months before the fee revenues are sufficient to cover your expenses.